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3 Tips for Evaluating the Commercial Potential of Your New Startup Idea

Entrepreneurs have a keen eye for innovation, but that doesn’t always translate into a gift for market research. As a result, many startups suffer from fundamentally misguided assumptions about the potential profitability of their business ventures. In fact, 70 to 80% of companies that do not meet their projected return on investment end up failing, an outcome that many entrepreneurs only realize after burning through large amounts of capital and time.

This disconnect is generally a consequence of proximity to an invention. As the creator of a service or product, it can be easy to wear blinders when it comes to your own idea. You are so focused on what you invented and how profitable it will be that you fail to see what else the design is capable of—or that it is actually incapable of penetrating the market.

To avoid these pitfalls and ensure your company is positioned for success, here are three ways to evaluate the commercial potential of your idea:

1. Solicit objective feedback

Getting a third-party opinion on your invention is an important way to protect yourself from missed details and lost time. Family, friends, and even team members may not see blatant issues, or are too polite to mention them, while someone with an outside perspective can reveal blind spots that anyone too familiar with the product might miss. Bringing fresh eyes to a plan, however, can help identify any attributes of the product that can be improved on without the concern of hurt feelings.

Perhaps a feature you thought would be a great differentiator already exists in another product. An objective third-party opinion can tell you whether that’s true and if your product is unique. Finding the flaws in your invention can save you thousands of dollars in wasted material and man-hours. If you’re an excited inventor, it may be hard for you to hear negative news, but learning the shortcomings of your product before going to market is incredibly important.

Identifying and correcting flaws can also make all the difference when you are looking for investors. Before you make your pitch, you want to make sure all the kinks have been worked out of your product.

2. Perform a SWOT analysis

A SWOT analysis is a valuable exercise for determining the potential of a new business. To complete one, you must flesh out four factors affecting your business: your strengths and weaknesses (internal factors), and any opportunities and threats (external factors).

Identifying your strengths and weaknesses requires that you take a serious look inside your operation, figuring out what makes it so great, while also searching for any weak points. For example, your company may have created a proprietary piece of software (a strength), but is struggling to find a leader who can drive the software’s success (a weakness).

Similarly, it’s important to identify opportunities and threats that could affect the success of your business. If you learn from an internet search that there are only 500 people in the world who have the problem you’re looking to solve, can your company survive with so few customers? If not, is there a way to alter your product to remain sustainable?

By focusing on both the positive and the negative, and being forced to see the weaknesses and threats facing your business, you will be better prepared to compete in your market. You’ll also have a more realistic expectation of your invention’s performance after looking at the reality of the challenges ahead of you.

3. Understand the full potential of your idea

Just as entrepreneurs have blinders on when it comes to the development of their ideas, they also can be blind to all the possibilities for their product. For example, many products can be used in more than one capacity, such as bubble wrap, which was originally designed as a type of textured wallpaper, and became a popular packaging material.

Discussing your invention with an external review team could reveal a different, unrelated application that could take it from a small to a large opportunity. It could even save you from launching your product in the wrong market or at the wrong time.

Fledgling businesses are often so caught up in the excitement of developing their product or service that it’s hard for them to take a step back and really evaluate the commercial potential. Planning beyond the first few years, however, can help you better understand the future of your business and build realistic expectations on which you and your investors can rely.

About the Author

Post by:Amy Shim

Amy Shim is director of client services at Tekcapital, and has played a key role in providing service and support to large U.S. institutional investors and technology companies. Prior to Tekcapital, she was responsible for account management, and institutional client relations at Western Asset Management. Previously, she worked within the corporate finance group at Moody’s Investors Service in New York, specializing in issuer relations. In that role, she was involved in the development of the infrastructure and processes used to create Moody’s global middle office operations.